Intercontinental Exchange’s mortgage technology business lost money for the eighth consecutive quarter, and ninth in the past 10 in the period ended Sept. 30. But its purchase of Black Knight is helping the segment’s results.
The period was the fourth full quarter since ICE’s acquisition of Black Knight closed on Sept. 5, 2023. On a pro forma basis that assumes the two companies have been operating jointly since 2021, operating income was $181 million for the third quarter, unchanged from the second quarter and up from $172 million for the same period last year.
But using a GAAP calculation, ICE Mortgage Technology had an operating loss of $54 million. That is larger than the $32 million loss in the second quarter but much improved over the $157 million for the third quarter of 2023.
Mortgage technology revenue of $509 million was similar to the second quarter’s $509 million. For the third quarter last year, it had revenue of $330 million.
But if revenue from the Black Knight business was included for the entire period, it would have totaled $517 million.
The bulk of that difference came from the servicing business. For the brief period ICE owned what had been the Black Knight servicing platform, it had $69 million of revenue.
But on a pro forma basis for the entire third quarter last year, the servicing software business earned $216 million.
In the most recent period, servicing revenue was $209 million, topping the origination side’s $182 million. For all four full quarters that ICE Mortgage Technology has owned the servicing platform, revenue has topped what it has been making from originations.
“Recurring revenues totaled $387 million,” Warren Gardiner, chief financial officer, said on the earnings call. “While recurring revenues declined year-over-year, as expected, they stabilized relative to the second quarter driven by an improvement in data and analytics and offset by the semiannual removal of retired loans on our servicing platform as well as lower minimums on Encompass.”
Using that pro forma metric, recurring revenues fell to $387 million from $396 million year-over-year. They were unchanged from the second quarter.
Gardiner went on to explain that while the majority of Encompass loan origination system users renewed their contracts at higher minimum usage, several customers did the opposite.
“Importantly, lower minimums at renewal are also paired with a higher price per closed loan or transaction fee, a dynamic that will provide a more material tailwind to revenues as the origination market normalizes,” Gardiner said
On the flip side, ICE Mortgage Technology’s transaction revenues for the third quarter were $122 million, versus $119 million in the prior period and $121 million in the previous year.
Gardiner said those increases came from revenue related to closed loans and applications on Encompass as well as an increase in MERS registrations.
Going forward, mortgage technology revenue should be between $495 million and $505 million in the fourth quarter. That will be driven by purchase market seasonality and related traction revenue.
“While mortgage origination volumes appear to have stabilized and seem likely to trend around these levels in the near term, we will continue to invest in developing new products, enhancing our technology and our existing product suite as well as expanding our network, all of which will further position our end-to-end platform to generate growth when market conditions normalize,” Gardiner said.
Intercontinental Exchange Chairman and CEO Jeffrey Sprecher gave a rundown on how the Black Knight acquisition one year later, including an update on the Encompass product and pricing engine it had to build out following the divestiture of Optimal Blue.
The upgrade is providing additional options for its lenders, servicers and funding partners.
“We’ve connected our network directly to Fannie, Freddie and Ginnie Mae for seamless pricing inquiries,” Sprecher said. “As a result, we went live with 32 new price engine clients this year accompanied by a strong pipeline of 19 others that are currently in the implementation phase.”
